Alasdair Smith is an Emeritus Professor of Economics at the University of Sussex and is a member of the UK Trade Policy Observatory

Parliamentary discussions on Brexit seem to be making no progress towards a decision that can command a majority and the timetable for future Parliamentary votes is uncertain. The only result of last week’s discussion in Brussels was an agreement to hold further talks later this month, a jaw-droppingly relaxed timetable in the circumstances.

The Labour Party leadership has produced a statement with two objectives both of which are probably unattainable: a customs union with the EU in which the UK has a significant voice in the setting of EU trade policy, and a close relationship with the single market that falls short of membership. The Conservative Party is having internal discussions (with civil service support, a constitutional innovation) about the Malthouse Compromise, whose oxymoronic objectives are a new backstop that is not a backstop or an agreed withdrawal without a withdrawal agreement.

Out of this unpromising material, however, some outcome must emerge before March 29. (more…)

Dr Peter Holmes, Reader in Economics at the University of Sussex, Director of Interanalysis and Fellow of the UK Trade Policy Observatory

Since the Government’s defeat in the House of Commons, there has been a flurry of comments, notably from Steve Baker arguing that Mrs May’s deal can be replaced by some form of Free Trade Agreement.

One must immediately point out that the treaty basis of the Withdrawal Agreement does not include a long-term trade agreement. This can only be negotiated after Brexit. But even if it could be negotiated now, it would not solve the problem of the Irish Border. The UK and the EU in both the Good Friday Agreement and the Dec 2017 joint statement committed themselves not merely to barrier-free trade in goods with no hard border in Ireland, but to the preservation of an All-Island Economy. (more…)

The Brexit Withdrawal Agreement and the Political Declaration are being presented as a means to end the uncertainty about the UK’s future relationship with Europe. But in an explainer for the ESRC’s UK in a Changing Europe, Professor L Alan Winters argues that this is not the case. Uncertainty will continue regardless of what happens to the Withdrawal Agreement.

Briefly, he argues that, if the Withdrawal Agreement is approved by Parliament and the EU:

The backstop it mandates requires a customs union between the UK and the EU and that most EU regulations for goods will apply in Northern Ireland. However, there is no regulatory alignment between the rest of the UK and the EU and so, if the backstop came into operation, there would be border formalities both in the Irish Sea and as UK goods entered the EU via any other route.

Negotiating a trade agreement with the EU will take a lot longer than the 21 months allowed for it in the Withdrawal Agreement, not least because every EU member state has a veto over trade agreements.

The Political Declaration that defines the parameters for that negotiation is imprecise in critical places and is, anyway, non-binding.

However, neither would rejecting the Withdrawal Agreement resolve the uncertainty. There is a wide range of possible outcomes all but one of which impose serious economic harm and/or require further negotiation. The option that involves least uncertainty and cost would be to remain within the EU; however, trying to achieve that outcome involves both significant political risks and the risk of ‘no deal’ if the attempt failed.

‘Through a glass, darkly’ is biblical – 1 Corinthians 13:12 – and is interpreted as meaning that we can see only imprecisely and via a mirror, but that, in the end, all will become clear. Seems about the best we can hope for.

Dr Michael Gasiorek is a Senior Lecturer in Economics at the University of Sussex and a fellow of the UK Trade Policy Observatory.

UK-EU negotiations are in a mess. There appears to be a genuine impasse, where the stumbling block is the issue of no border in Ireland. The EU has indicated it is for the UK to make a better offer, while the UK is arguing that the EU needs to be more reasonable. Both are right, if they want to avoid ‘no deal’. (more…)

L. Alan Winters CB is Professor of Economics and Director of the UK Trade Policy Observatory and Nicolo Tamberi is a Research Assistant in Economics for the Observatory

The brusque dismissal of elements of Mrs May’s Chequers plan at the informal meeting in Salzburg last week has stimulated feverish attempts to revive the case for a deep and special UK-EU Free Trade Agreement (FTA), under the title of a CETA-plus agreement. This effort received substantial reinforcement from the Institute for Economic Affairs’ paper of 24 September 2018. None of the discussion, however, has dealt seriously with the fact that an FTA will require the introduction of border formalities on UK-EU trade and that these will both violate the commitment to the absence of a border in Ireland and create serious congestion at those ports dealing with UK-EU flows, which will increase trading costs and cut trade with the EU. (more…)

Dr Emily Lydgate is a lecturer in Law at the University of Sussex and a fellow of the UK Trade Policy Observatory.

In its Chequers White Paper, the UK government has proposed that, in order to facilitate a frictionless border, it will operate a dual customs regime known as a Facilitated Customs Arrangement (‘FCA’). By replacing rules of origin checks at the EU-UK border with internal monitoring, the FCA requires firms to establish ‘robustly’ the destination of their products to ensure that correct duties have been applied, and then, if they wish, to seek rebates if they have been overcharged. Past UKTPO blogs have addressed logistical challenges and strategic downsides of this ‘Fantastically Complicated Alternative’ (see also Does the Chequers Agreement provide any steps to Brexit heaven?)

But would it be compatible with the rules of the World Trade Organization? The precise details of the FCA’s operation remain unclear. Barring a dispute, it’s not possible to settle the question definitively, but the FCA does prima facie pose a risk of WTO non-compliance. We presume that the UK government has undertaken some analysis of this, and that it covers (at least) the following issues. (more…)

Dr Michael Gasiorek is Senior Lecturer in Economics at the University of Sussex and Managing Director of InterAnalysis. He is a Fellow of the UKTPO.

In good part, the answer depends on the extent to which this agreement moves on from the Government’s previous position, is feasible, is credible, and is acceptable to the EU. It also depends on whether it will be acceptable to the Conservative party, which the resignations of David Davis and Boris Johnson throw into serious doubt.

In this blog, I focus on one aspect of this – the extent to which the “facilitated customs arrangement” (FCA), which is central to the agreement notionally reached at Chequers, is substantively different from the previous idea of a “New Customs Partnership” (NCP). (more…)

L. Alan Winters CB is Professor of Economics and Director of the Observatory.

Two years in and the Cabinet is still squabbling over the UK’s trade relationship with Europe. Among the options most discussed, if not most likely to occur, are

The Jersey option – arrangements to provide conditions equivalent to the customs union and the Single Market in goods;

Mrs May’s ‘third way’ customs partnership – where the UK collects EU-level tariffs at the border and rebates them only if UK tariffs are lower and firms can prove that the goods did not leave the UK. Until the UK can convince the EU that the technology to do the latter will actually prevent the leakage of lower-taxed goods into the EU, this is effectively the ‘customs union’; and

This blog does not assess the relative merits of these arrangements, but notes that they share a common flaw: they ignore 80 percent of the British economy! The more successful 80 percent, in fact – the services sectors, in which the UK has a manifest comparative advantage (see below). The advocates of these plans gloss over this difficulty by claiming that the UK can negotiate services trade agreements both with the EU and with other countries. But this is easier said than done. (more…)

Alasdair Smith is an Emeritus Professor of Economics at the University of Sussex and is a member of the UK Trade Policy Observatory.

Not before time, the UK government is giving attention to the ‘backstop’ provision which will be written into the Withdrawal Agreement for Brexit to avoid a hard border in Ireland. But rather than focussing on how to sell this politically in the UK, the government needs to address the more pressing question of whether the European Union (EU) will agree to the UK’s preferred version of the backstop. (more…)

While Theresa May and her cabinet are trying to agree on whether to back the maximum facilitation proposal or the customs partnership, another option, nicknamed the ‘Norway option’ which would see the UK remaining a member of the European Economic Area (EEA), has made a comeback in the Brexit debate. (more…)